Nature of investment

Investment can be made by way of subscription for ordinary shares, where the enterprise has an issued share capital, or by way of ‘qualifying debt investment’. There are a number of conditions regarding ordinary shares, again very similar to those under Enterprise Investment Schemes (EIS)/Seed Enterprise Investment Schemes (SEIS), aimed at avoiding shares with preferential rights.

Qualifying debt investments must also meet various conditions, in particular, they:

must not be secured on assets

must not carry a greater than commercial rate of return

must be subordinated to other debts and rank equally to shares in the Enterprise, if any.

Effectively, the debt investment option allows qualifying investments equivalent to shares to be made in entities which cannot issue ordinary shares.

Investors claiming relief cannot be employees, paid directors or officers/trustees of, or control more than 30% of the Enterprise or linked entity.

There are a number of other detailed anti-avoidance provisions preventing relief – for example, where there are prearranged exits or risk avoidance arrangements – and provision for withdrawal of the relief if conditions cease to be met: again, very similar to EIS/SEIS provisions.